Vonage Tries Upping Pressure, Playing Dangerous Marketing Game

(MoneyWatch)  For some time, Vonage has been trying to entice new users with a better-value proposition, claiming that they will pay less than a typical telephone service by using Vonage. And it's just taken another step by making free international calls into 60 countries part of its standard plan. But the marketing approach is a dangerous game for the company.

From a marketing theory view, first, Vonage is undercutting the consumer value for its own products. When a company adds more for nothing, it sends a subconscious signal that its original offering might not have been worth all that much in the first place. International calling is likely to be attractive to those who actually need it, which would mean Vonage would be essentially courting customers that were more expensive to maintain. The offer also creates the expectation that holding out for a longer period of time might result in even higher savings, causing people to delay adoption.

And that's something the company cannot afford at the moment. In its last quarterly filing earlier this month, Vonage noted that customer churn was up to 3.2 percent from 3 percent the year before. In addition, it lost 89,000 net subscribers, ending the quarter with 2.5 million lines. On the whole, it is losing customers.

Finally, the entire value proposition is something of a myth. In its marketing, Vonage pushes the "only $24.95, unlike the phone companies" message. However, for the service to work, someone already must be spending significantly more than $24,95 for broadband access, and whatever company provides it can likely offer phone service for a lot less. So Vonage can be successful so long as its competitors that own the Internet connections don't decide to undercut it.

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